DOMESTIC TAXES DEPARTMENT

EMPLOYER'S GUIDE TO PAY AS YOU EARN IN KENYA

Revised Edition - 2006

(NOTE:-THIS EDITION INCORPORATES (P38) MONTHLY TAX TABLES)
Form P.7

KENYA REVENUE AUTHORITY

DOMESTIC TAXES DEPARTMENT

EMPLOYER'S GUIDE TO PAY AS YOU EARN IN KENYA
Revised Edition - 2006

IMPORTANT: The objective of this booklet is to explain the system of deducting income tax from employees' emoluments. It does NOT therefore in any way modify or replace the General Legislation (Income Tax Act Cap 470). It may be some time before a further reprint is available therefore employers should carefully preserve this edition. NOTE: I. This issue contains many important amendments affecting P.A.Y.E. operations in the year 2006. II. This Edition Incorporates (P38) Monthly Tax Tables (See Page iii)

Form P.7

DEAR EMPLOYER I wish to appreciate your continued co-operation in the operation of the PAYE tax scheme and look forward to your continued support. The Finance Act 2005 contains few amendments to the Income Tax Act (Cap. 470) which affect PAYE tax operation with effect from 1st January 2006. Personal Relief and Income Tax Brackets remain unchanged. Personal Relief Monthly Personal Relief was increased from Kshs. 1,056 per month to Kshs. 1,162 per month (or Kshs. 12,672 per annum to Kshs. 13,944 per annum) with effect from 1st January 2005. This relief will still apply in 2006. Income Tax Brackets The taxable income bands have been widened which means that an employee whose earnings is less than Kshs. 11,135 per month is not eligible for PAYE. Effective Date 1st January 2005. The same tax rates will apply in year 2006. Compensation for Loss of Office (Contract of Employment) Section 5 (2) (c) of the Income Tax has been amended as follows:• • In case the contract of employment is for a specified term, the lump sum payable shall be spread forward and assessed evenly over the unexpired period of the contract. Where the contract of employment is for unspecified term with no provision for compensation, the amount of compensation shall be deemed to have accrued evenly and assessed in the three years period immediately following termination of the contract.

The amendments took effect from 1st July 2004. Tax Free Monthly Pension or Annuity – Section 8 The tax free limit of monthly pension has been increased from Kshs. 12,500 per month to Kshs. 15,000 per month (Kshs. 150,000 per annum to Kshs. 180,000 per annum) with effect from 1st July 2004. Employers’ Contribution to Registered or Unregistered Pension Scheme or Provident Fund Contributions paid by a non-taxable employer to unregistered pension scheme or excess contributions paid to a registered pension scheme, provident fund or individual retirement fund shall be employment benefit chargeable to tax on the employee. The amendment took effect from 1st July 2004. Deductions in respect of registered individual retirement fund (Section 22A and 22B) The percentage rate is 30% of pensionable income of the individual to be in line with employers registered retirement schemes. The allowable deduction shall be the lesser of:The actual contribution made by the individual, or 30% of pensionable income, or Kshs. 20,000 per month (or Kshs. 240,000 per annum) The amendment is effective from 1st January 2006. You are further advised to kindly observe the due date for remittance of PAYE tax deductions, which is on or before the 9th day of the month following the Pay-roll month, and to take note of the important changes incorporated in this Guide. Please preserve your copy. (WELCOME - PLEASE READ ON)

A. K. OKELLO

P.38 TAX TABLES TAX TABLE FOR MONTHLY INCOME: YEAR 2006
MONTHLY TAXABLE INCOME (INCOME BRACKETS) For Taxable Income under Kshs. 10,165 Kshs. 1,016 on Taxable Income of Kshs. 10,164 10% TAX ON TAXABLE INCOME TAX RATE IN EACH SHILLING

For Taxable Income from Kshs. 1,016 plus Kshs. 1,436 Tax on Kshs. 10,165 but under Kshs. 19,741 For Taxable Income form Kshs. 2,452 plus Kshs. 1,915 Tax on Kshs. 19,741 but under Kshs. 29,317 For Taxable Income from Kshs. 4,367 plus Kshs. 2,394 Tax on Kshs. 29,317 but under Kshs. 38,893 For taxable Income from Kshs. 6,761 plus Tax calculated at 30% on Taxable Income over Kshs. 38,892 30% taxable Income of Kshs. 9,576 25% Taxable Income of Kshs. 9,576 20% Taxable Income of Kshs. 9,576 15%

Kshs. 38,893 and above.

... b.. Employer ……………………………………………………………………………………………………… b.……………………………….GENERAL …………………………………………………………………….. DEFINED BENEFIT FUND OR DEFINED CONTRIBUTION FUND………….. ………………………………………………... Notes……. 11 ...……………………………………………………………………………………………………. OWNER OCCUPIED INTEREST SEC. “PAY AS YOU EARN” APPLIES TO ALL EMPLOYMENTS………………………………………………… EMPLOYER’S DUTY TO DEDUCT INCOME TAX. Director …………………………………………………………….…………………………… PURPOSE OF EMPLOYER’S GUIDE TO “PAY AS YOU EARN”..…………………………………………. MONTHLY PAY-SLIP ………………………………………………………………………………………………… TAX DEDUCTION CARD……………………………………………………………………………………………. Any Other Employee ……………………………………………………………………………………. 20 21. 12. Monthly Pay …………………………………………………………………………………………………. PASSAGES………………………………………………………………………………………………………………… 7 MEDICAL……………………………………………………………….………………………. 5. 12B) …………………………………… 8... c.. 7 7 8 8 8 9 10 11 11 PROCEDURE ON COMPUTATION OF TAX FOR LUMP SUM PAYMENTS….. 15. 19.. e. “Paid” …………………………………………………………………………………………………………. 11. 14. HOME OWNERSHIP SAVINGS PLAN……………………………………………………………………………. Employee …………………………………………………………………………………………………….. Fringe Benefit Tax Payable by Employer (Sect. e.………………………………………………………………………….…………………………………… d. Paying Point …………………………………………………………………………………………………. 2. PAGES 1 1 1 1 1 2 2 2 2 2 2 3 3 4 4 5 5 5 5 6 6 6 7 I. 6. EMPLOYER’S CONTRIBUTIONS ETC…………………………………………………………………………….. a.. 9. d. LOW INTEREST RATE.. 15 (3) (b)……………………………………………………………. TAX FREE REMUNERATION……………………………………….. HOUSING SECTION 5(3) ………………………………………………………………………………………...………………………………………………………………………….………………………………… 1. 18. 3.. CAR BENEFIT SECTION 5 (2B)………………………………………………….14 .……………………………. 16. Whole Time Service Director ………………………………………………………………. EMPLOYMENT BENEFITS…………………………………………………………………………………………. c...…………………………………………. 10. REGULATIONS …………………………….. 4. EMPLOYMENT BENEFIT/FRINGE BENEFIT …………………………….…………………………………………………………………………. ………………………….. 7. 13. a. PERSONAL RELIEFS ………………………………………………………………………………………………… MONTHLY TAX TO BE DEDUCTED…...EMPLOYER’S GUIDE TO “PAY AS YOU EARN” CONTENTS PART 1 ..………………………………………………. Low Interest Rate Benefit ………………………………………………………………………… II. DEFINITIONS OF TERMS USED……….. 17. Agricultural Employee ………………………………………………..

4...... 5..... 1.…………………………………… NECESSARY ADJUSTMENTS DURING THE YEAR …………………………………………………………. INTEREST AND PENALTY …………………………………………………………………………………. P9B. MULTIPLE PAYE SOURCES OF INCOME ……………………………………………………………………… . 18 19 19 19 19 19 20 20 20 20 20 20 20 PART V . DEPARTURE OR DEATH DURING THE YEAR ………………………………………………… CHANGE OF PERSONAL CIRCUMSTANCE DURING THE YEAR ………………………………………..... PART IV . PART VI . 2. ARITHMETIC OR OTHER ERRORS ON TAX DEDUCTION CARDS …………………………………… OBJECTION BY EMPLOYEES ……………………………………………………………………………………...END OF YEAR PROCEDURE ……………………………………………………………………………... 2..………………………………….22..15 PART II .. PAYE AUDIT TAX...21 3... P9A. HOW TO PAY-IN THE TAX DEDUCTED ……………………………………………………………………… SPECIAL ARRANGEMENTS FOR REMOTE AREAS …………………………………………………………. CALCULATION OF BENEFITS ON REVERSE SIDE OF THE P9A………………………………………….. 16 16 16 16 16 16 16 16 ... 1....………………………………. CERTIFICATE OF PAY AND TAX (P9A.SPECIAL CASES ………………………………………………………….... 3..…………………………………... HOW PAYE TAX IS WORKED…………………………………………………………... 21 21 AUDIT PROCEDURE…………………………………………………………….. 3.. 3.. 5. 14 ... 2.. TAX TABLES ……………………………………………………………………….....WHAT THE EMPLOYER SHOULD DO BEFORE 1ST JANUARY.. 2. EMPLOYER WISHING TO USE OWN TAX DEDUCTION CARDS ……………………………………… LIABLE EMPLOYEE LEAVING ………………………………………………….... EMPLOYERS CERTIFICATE OF PAY AND TAX ………………………………. ARRIVAL.... Tax Deduction Cards (P9A....... a) b) c) d) 2. 1.. 1. P9A (HOSP).……………………………………… 21 22 22 22 22 PART VII . 20 ..... WHO IS LIABLE FOR PAYE ……………………………………………………………………………………….... Supporting list P10A………………………………………………… ……………………………………… Fringe Benefit Tax Return (P10B)……………………………………………………………………….. 3...... P9B……………………………………………………… Employer’s Certificate (P10)………………………………………………………………………………. 1. 4. 3.... NEW EMPLOYEE ………………………………………………………………….END OF MONTH PROCEDURE………………………………………………………………………… 1. PAYMENT OF TAX DEDUCTED FROM LUMP SUM. RETURN OF DOCUMENTS TO INCOME TAX OFFICES ON OR BEFORE 28TH FEBRUARY…………………………………………………………………………….. 6. P9A (HOSP) AND P9B ……………………………………………………………………………………….……………………………. 7. COMPLETION OF TAX DEDUCTION CARDS…………………………………………………………………. 2. 4.………. EXTENT OF PENALTIES & INTEREST …………………………………………………………………………. 5. APPEAL BY EMPLOYERS AGAINST PAYE PENALTIES …………………………………………………….. P9A (HOSP)………………………………………………….....17 17 17 17 17 18 18 18 PART III ....... DOCUMENTS TO BE SENT TO EMPLOYERS …………………………………...TAX DEDUCTION CARDS ……………………………………………………………………………….. EACH YEAR ………………………………………………………………………………………………………………………... LIST OF EMPLOYEES ………………………………………………………………………………………………..……………………………...REMITTANCE OF TAX ………………………………………………………………………………………. CHECK DOCUMENTS RECEIVED ………………………………………….

. 41 42 43 44 45 . 1C. 8..……………………………… Employers Supporting List (P10A)……………………. 1B. 7A... COMPLETION OF FORMS …………………………………………………………………………………………. 2A. 4C. 5.. 3B. 6A. Currency Exchange Rates…………………………………………………………………………………………. 2B..………………………………... 24 APPENDIXES 1A. CESSATION OF BUSINESS ………………………………………………………...………………………. How to Complete form (P9B) (table 1)………………………………………………………………………… Tax Free Remuneration (Table 2)………………………………………………………………………………... Reverse Side of Form P9 (Similar for all P9s) ……………………………………. Table II . 4 4A.Annual Tax Table (Tax Free Remuneration) (Computation Formula)………………. 6. 7B. DEATH OF AN EMPLOYER ………………………………………………………………………………………… CHANGE IN EMPLOYER …………………………………………………………………………………………….…………………………… Commissioner’s Prescribed Rates…………………………………………………………….. 24 24 24 24 24 PART VIII .………………………..………………………………………………… 40 Employers Certificate.. 7C. Table I .………………………………………………………… Fringe Benefit Tax Return (P10B) ……………………………..Form P9A (Owner Occupied Interest)………………………. How to Complete Tax Deduction Card P9A………………………………………….………………………... National Assembly & Parastatals (P10C)……………….. 25 26 27 28 29 30 31 32 33 34 35 36 37 . 1.. 5A 5B.38 39 4D...…………………... 6..46 47 48 49 50 . Employers Certificate (P10) ………………………………………………………. 23 RECONCILIATION OF RETURNS………………………………………………………………………………….………………………………….. How to Complete (P9A) (HOSP)…………………………………………………………………………. 5C. 7. 7.2006……………………………………….Form P9A (Quarters/Pension)…………………………………………………….. Tax Deduction Card . Tax Deduction Card . Individual Rate of Tax: 2001 . Credit Pay-In Slip (P11)……………………………………………………………………………………………. Government. Fringe Benefit Tax Rates…………………………………………………………………. 9. 4B.. PAYE Forms in use……………………………………………………………………………………………………. PENSIONERS …………………………………………………………………………………………………………… 23 APPLICABLE TO CIVIL SERVANT SERVANTS/MEMBERS OF PARLIAMENT………………………. Tax Deduction Card (Tax Free Remuneration) P9B………………………………………………………. 3A. 3 4..5..Monthly Tax Table (Tax Free Remuneration) (Computation Formula)……………….MISCELLANEOUS …………………………………………………………………………………………. How to Complete P9A (Owner Occupied Interest)………………………………………………………… Tax Deduction Card P9A (Home Ownership Savings Plan)……………………………………. 2. Low Interest Benefit Tax Rates………………………………………………………………………………….. Instructions for Completing P11…………………………………………………….

The necessary P.A. The normal P. .Y. "PAY AS YOU EARN" APPLIES TO ALL EMPLOYMENTS The "Pay As You Earn" method of deducting income tax from salaries and wages applies to all income from any office or employment. REGULATIONS This booklet is only a guide and in no way modifies the general legislation. PURPOSE OF EMPLOYER'S GUIDE TO "PAY AS YOU EARN General instructions on the operation of "Pay As You Earn" accompany the documents sent to employers before each P. where the amount from a registered pensions funds exceeds Kshs. Stationery is issued to Employers before commencement of the year. 2. directors' fees (whether the director is resident or non-resident) pensions paid to pensioners who reside in Kenya.Y. The administration of the Law is vested in the Commissioner of Domestic Taxes Department who may authorize other persons to perform the majority of the duties for which he is responsible. The relevant legislation is contained in section 37 of the Income Tax Act and such rules as the minister may have made under section 130. system. and the provisions of the Act relating to the collection and recovery of the tax shall apply to the collection and recovery of any tax payable and such penalty as if it were tax due by the employer. annual salaries.A. the emoluments of which are calculated by reference to the period of the engagement or shorter intervals. Where a problem arises which is not covered in this Guide. bonuses. Regular part-time employees and regular casual employment where the employees are employed casually but regularly are not considered to be casual employees.E.A.E. commissions.Y. 3. It does not include earnings from "casual employment" which means any engagement with any one employer which is made for a period of less than one month.E. then Employers should contact the Local Income Tax Offices for assistance.Y. The system applies to all cash emoluments and all credits in respects of emoluments to employees' accounts with their employers. 180. and any other income from an office or employment. The purpose of this Guide is to assist employers in general operation of P. no matter to what period they relate. the Commissioner may by order impose a penalty equal to twenty five percent of the amount of tax involved or ten thousand shillings whichever is greater.000 per annum. If any employer fails to comply with the provisions of section 37 and with the provisions of any rules made under section 130 which deal with the payment over of tax deducted and the accounting for it to the Commissioner. Thus "Pay As You Earn" applies to weekly wages.A. period and there are further specific directions printed on the various forms issued by the Income Tax Office. It includes the value of housing where this is supplied by the employer. EMPLOYER'S DUTY TO DEDUCT INCOME TAX It is the employer's statutory duty to deduct income tax from the pay of his employees whether or not he has been specifically told to do so by the Department. monthly salaries. 4.E.PART I GENERAL 1. year runs from 1st January to 31st December.

Any cases of doubt should be referred to the Income Tax Office for advice. (c) Paying Point A "paying point" is the place at which remuneration is paid. house rent. It may accordingly include the manager of a branch or farm as well as the main employer. Any paying officer of Government or other public authority. telephone bills. included on the Tax Deduction Card and taxed accordingly.000 per annum).000 per month (Kshs. grocery bills. . e. school fees. DEFINITIONS OF TERMS USED (a) Employer For "Pay As You Earn" purposes the term "employer" is to be taken. sick pay. overtime. telephone allowance. e. 180. commission. Such amounts must. individuals working for any Religious Organization etc. be shown on any return of wages called for by the Income Tax Office. leave pay. private or calling. chief.. when necessary. "Employee" should be read as including. Expenses incurred wholly and exclusively in the production of employment income out of such Round Sum Allowances should be claimed on completion of self-assessment return of income. tax operated on the remuneration accordingly. Any amount not paid in cash but credited to an employee's account with the employer is to be treated as paid and tax deducted accordingly.A. Any trust or insurance company or other body or person paying pensions. The main employer must decide which offices. The amount of any private expenditure of the employee paid by the employer otherwise than as a loan. This will include: (i) Wages. any public servant. for example. to include: (i) (ii) (iii) (iv) Any person having control of payment of remuneration. minister. mileage allowance for use of employee's car or for travelling expenses incurred in the course of employment will be excluded..3000 per month. bonus. manager or other representative in Kenya of any employer who is outside Kenya. however.g. Non-cash benefits when the aggregate value exceeds Kshs. 15. etc. water. gratuity or pension whether payable monthly or at longer or shorter intervals. in addition to those more commonly known as employees. company director (resident or non-resident). whether public. for which remuneration is payable. electricity. It includes an employee who retires on pension and stays in Kenya where pensions received from a registered pension fund exceed Kshs. subsistence allowance when on duty away from home. Any agent. are to be "pay point" (see below) and ensure that those in charge are adequately instructed in their duties under the scheme. payment in lieu of leave. house or rent allowance. Round sum expense allowances should be treated as pay. where provided by the employer. (ii) (iii) (iv) (v) Any amount which is mere reimbursement of expenses of employment.g. The value of housing.5. directors' fees and other fees. If a non-resident employer calculates remuneration abroad and remits the remuneration direct to the employee then such remuneration should be notified to the Department through the employer’s local representative and P. accrued in or derived from Kenya.Y. e. (b) Employee This word is defined as inclusive of any holder of an appointment of office.E. (d) Monthly Pay "Monthly pay" includes income in respect of any employment or service rendered. secretary. Cash allowances. round sum allowance etc.g. salary.

24. provided that the Commissioner may from time to time prescribe rates of benefits where the cost or fair market value cannot be determined. 36. (ii) Following amendment to Section 5 (5) of the Income Tax Act through the Finance Act 2003: the chargeable value of a benefit. .000 per month (or Kshs. Water – (communal or from a borehole). advantage or facility of whatsoever nature in connection with employment or services rendered. 3. then the difference between the prescribed rate and employer's loan rate is a benefit from employment chargeable to tax on the employee.e. advantage or facility has been increased from Kshs. 1998 and loans provided after 11th June. the Commissioner has prescribed rates on the following:Prescribed Rates Monthly Rates A (i) (ii) (iii) (iv) B (i) (ii) SERVICES Electricity – (communal or from a generator). In line with the provisions of the law.000 to Kshs. The benefit is computed as the difference between the interest charged by employer and prescribed rate of interest. the determination of the chargeable benefit is now in two categories i. Provision of furniture. NOTE: School fees: Education fees of employee's dependants or relatives will not be taxed on the employees provided the same has been taxed on the employers! (7) LOW INTEREST RATE EMPLOYMENT BENEFIT/FRINGE BENEFIT When employer provides loan to an employee and charges interest which is below the prescribed rate of interest. 1998. Telephone (Landline and Mobile Phones) Water Electricity 30% of bills 200 900 2400 10800 AGRICULTURAL EMPLOYEES: REDUCED RATES OF BENEFITS (Kshs) 1500 500 Annual Rates (Kshs) 18000 6000 Note: The above rates in (A) and (B) are effective from 12th June 2003. following amendment to the law by the 1998 Finance Act and introduction of "FRINGE BENEFIT TAX" which is payable by employers. 1% of cost to employer. REFER TO APPENDIX 7 SHOWING DETAILS OF BENEFITS. If hired the cost of hire should be brought to charge. the value such benefit should be included in employee’s earnings and charged to tax.000 per month to Kshs. advantage or facility granted to employee by virtue of employment or services rendered should be taken as the higher of the cost to employer or fair market value of the benefit. However. for loans provided on or before 11th June. 2. The minimum taxable aggregate value of a benefit.000 per annum). Low interest rate employment benefit provisions will also apply to a director and will continue to apply even after the employee or director has left employment as long as the loan remains un-paid.(6) EMPLOYMENT BENEFITS (i) VALUE OF BENEFIT – SECTION 5 (2) (b) Where an employee enjoys a benefit. This is with effect from 1st January 2006.

For the year 2005 the Commissioner published the following prescribed rates of interest:- .500.500 x 30% = KShs. 1998 or loan provided on or before 11th June.500.2. Example Employer's loan amount Interest charged to employee Market Interest rate for the month KShs.30.e KShs.(i) Low Interest Rate Benefit Employees will continue to be taxed on low interest rate benefit in respect of loans provided by the employer on or before 11th June.100.000 x 2% = KShs.000 x 2% = i.NIL = 2%) KShs.1998 Tax known as Fringe Benefit tax was introduced by new provisions under Section 12B of the Income Tax Act. director or their relatives at an interest rate lower than the market interest rate. 3.Low Interest Benefit is (2%-NIL=2%): *The prescribed rate of interest for the year of income commencing on or after 1st January. 1998.1.500 per month Calculation of Low Interest benefit: .2. The taxable value of Fringe Benefit is determined as follows:In case of loans provided after 11th June.2.000 NIL 2% Calculation of Fringe Benefit Tax:Fringe Benefit is (2% . 1998 as before. YEAR 2005: SEE APPENDIX 7B for the Rates on Low Interest Benefit. 42. Example Loan provided by employer Employer's Loan Interest Rate Prescribed Rate of Interest KShs.000 per annum KShs. For the year 2005. Fringe Benefit tax payable by employer is Kshs.000 NIL (interest free) 2% KShs 1. The low interest benefit chargeable on the employees is calculated as the difference between interest charged to the employee and the prescribed rate of interest of 15% per cent.100.500 per month.000 per annum i.1050/(for the month). 1998 whose terms and conditions have changed after 11th June. KShs. 1995 is 15 per cent (15%) or such interest rates based on the market lending rates as the Commissioner may prescribe from time to time. 1998 in respect of loan provided to an employee. 3. YEAR 2005: SEE APPENDIX 7C for the Rates on Fringe Benefit. It is payable by the employers commencing on the 12th June. or such interest rate based on the Market Lending Rates prescribed by the Commissioner. the value of Fringe Benefit shall be the difference between the interest that would have been payable on the loan if calculated at the market interest rate and the actual interest paid. the Commissioner published the following interest rates:(a) (b) (ii) January – June 2005 July – December 2005 6% 8% 8% 1st Half of the year 2006: January – June 2006 Fringe Benefit Tax Payable By Employer (Section 12B) Effective Date 12th June.e. whichever is lower.

the value of quarters determined shall be the fair market rental value of the premises in that year or the rent paid by the employer.Y. Agricultural Employee (ii) c) (Including a whole time service director) who is required by terms of employment to reside on a plantation or farm. the value of quarters determined shall be the fair market rental value of the premises in that year or the rent paid by the employer whichever is the higher or.(i) Where the premises are provided under an agreement with a third party which is not at arm’s length. the fair market rental value of the premises in that year is to be taken. A Whole Time Service Director (ii) b) Taxable benefit shall be an amount equal to 15% of the gains or profits from his employment. penalties. . Provided that. 1999 is due and payable on before 10th January.1st Quarter of the year 2006: January – March 2006 NOTES - - 8% Fringe benefit is taxable at corporation rate of tax of 30% of the determined value of the benefit. (see also reduced rates of benefits for agricultural employees – Appendix 5). remittance. the fair market rental value of the premises in that year is to be taken.(i) where the premises are provided under an agreement with a third party which is not at arm’s length. Where the premises are owned by the employer.SECTION 5(3) The value of housing provided by the employer is determined as follows:a) Director In the case of a director of a company other than whole time service director. excluding the value of those premises. Fringe benefit tax charged prior to 1ST January. This is subject to employer obtaining prior approval from Income Tax Office. objections and appeals shall apply to the fringe benefit tax. Fringe benefit tax shall be charged on the total taxable value of Fringe benefit each month and the tax is payable on or before the 10th day of the following month to the Pay-Master General in the same way as normal P.10% of his gains or profits from employment minus any rent charged to the employee. 1999. whichever is the higher. an amount equal to 15% of his total income excluding the value of those premises. Employers will therefore pool together all the Fringe benefits for the employees in each month. - (8) HOUSING . Where the premises are owned by the employer. The provision of loans shall include a loan from an unregistered pension or provident fund. Provided that. The above provisions will continue to apply even after employee leaves employment as long as the loan remains un-paid. or.E. “Market Interest Rate” means the average 91 days Treasury Bill rate of interest for the previous quarter.A. interest charged. Fringe benefit tax is payable even where corporation tax is not due by the employer in question The provisions of the Act relating to fines.

Kshs.000 x 15 = Kshs.) – Kshs.g.750 100 *Rent paid by the employer Kshs. The cost of hiring or leasing and II. 20.000 per month plus other benefits – (e.000/= per month is the amount to be brought to charge and not 15% value of quarters. or Where the premises are owned by employer.000 Kshs. 15.000 per annum) under an agreement made at arm’s length with the third party. the value is 15% of employment income relative to the period of occupation less any rental charges paid by employee/director. 30.000/= is housed and the employer pays to the Landlord rent of Kshs. House Servants etc.(i) If employer pays rent under an agreement not made at arm’s length with a third party. If the premises are occupied for part of the year only. 45. (Chargeable value shall be reduced by rent paid by an employee). 20. 6. equal to the higher of: I. Motor Car.000 Kshs. The prescribed rate of benefit. whichever is higher.000 Kshs. (9) CAR BENEFIT – SECTION 5 (2B) Where an employee is provided with a motor vehicle by employer. the value of quarters shall be.d) Any other Employee The taxable value shall be the higher of an amount equal to 15% of the gains or profits from employment or services rendered. In calculating the housing benefits employer is required to deduct rental charges recovered from the employee or director. the chargeable benefit for private use shall be the higher of the rate determined by the Commissioner and the prescribed rate of benefit. (ii) NOTES - - - Example: A Manager who earns basic salary of Kshs. 240.e. Any employer who provides other than normal housing to an employee should consult his local Income Tax office for advice regarding the value of such housing. the fair market rental value of the premises in that year is to be taken. The “prescribed rate of benefit” means the following rates for each month on the initial cost of the vehicle:• 1996 1% per month of initial cost of the vehicle . Where such vehicle is hired or leased from third party employees shall be deemed to have received a benefit in that year of income. Calculation For Value of Quarters Basic Salary Add: Benefits Total 15% Value of quarters there of Kshs.000 per month (i. the fair market rental value of the premises in that year or rent paid by the employer. 15. 30. REFER TO P9A – APPENDIX 1A. 45. or the rent paid by the employer if paid under an agreement made at arm’s length with a third party: Provided that. The amount remaining is the chargeable value to be included in the total taxable pay. excluding the value of those premises.

000. 20. 50. Passages paid for by the employer in circumstances other than that in italic above are a taxable benefit on the employee. 2. 8. such employee receives a cash sum either periodically or in one amount which he is free to save or spend as he chooses or for any other purposes and for the expenditure of which he does not have to account to the employer.600 The chargeable car benefit is therefore Kshs.Example: X employee who is employed as a Financial Controller is provided with a car – Mitsubishi Pajero (cc rating 2400) which was bought in July 2001 for Kshs. rating 2.000.000 per annum). 1997. employee's actual contribution. Where there is no plan or scheme.500. Where. 17.00 effective 1st January 2006.000 per month (i. (13) DEFINED BENEFIT FUND OR DEFINED CONTRIBUTION FUND An employee's contribution to any registered defined benefit fund or defined contribution fund is now an admissible deduction in arriving at the employee's taxable pay of the month. including leave passages for his employee and family. • Car benefit is calculated as follows:2% x Kshs. for the non-whole time service director the medical benefit is limited to a maximum of Kshs. 240. Ksh. 50. the value of the passages is a non-taxable benefit of the employee if the employee is recruited outside Kenya and is in Kenya solely for the purpose of serving his employer and he is not a citizen.500 per month to Kshs. however. In such circumstances the employer bears the burden of tax on behalf of such employees.000 = Kshs.000. (12) MEDICAL Where an employer has a written plan or scheme.000 per month .400 = Kshs. or by practice. Where an employee is a member of a pension scheme or provident fund and at the same time the National Social Security Fund (NSSF) the maximum allowable contributions should not exceed 30% of pensionable pay .500.e Kshs. The tax so paid by the employer for the employee becomes a benefit chargeable to tax (P. effective 1st January 2006. 1. However. the amount received is a taxable cash allowance. provides free medical services to all his employees the value of such medical services is a non-taxable benefit of all employees and all directors.20. National Social Security Fund Contributions made to the National Social Security Fund (NSSF) qualify as a deduction with effect from 1st January.9B Card as shown in Appendix 4A is to be used for this purpose). (10) TAX FREE REMUNERATION There are certain instances when an employer wishes to pay his employees salaries negotiated net of tax. (11) PASSAGES When an employer himself pays for or reimburses the cost of tickets for passages. payments made to employees’ towards medical services is a taxable cash payment and must be included in the employees’ pay for the month in which payment is made and taxed accordingly. The employee's deductible contribution is the lesser of: (a) (b) (c) NOTE Maximum allowable Pension/Provident Fund contribution had been increased from Kshs. 2.000 per month.000 per month Commissioner’s fixed monthly rate cc.

Employers will attach to Form P9A (HOSP) a declaration duly signed by the eligible employee. a married woman can now file her own separate return of income and declare income from employment.SECTION 15(3)(b) In ascertaining the total income of a person for a year of income interest paid on amount borrowed from specified financial institution shall be deductible.000 per annum) The amendment is effective from 1st January 2006. professional or self- . Form P9A (HOSP) as shown in Appendix 3A is to be used for this purpose. NOTE: “Approved Institution" .000 per year (equivalent to Kshs.000 /.500 per month). in the qualifying year and the subsequent nine years of income. Following amendment to Section 45 of the Income Tax Act through the 1999 Finance Act. Employer will be the one to deduct and remit the amount to the Institution on behalf of the employee. (14) EMPLOYERS CONTRIBUTIONS TO REGISTERED OR UNREGISTERED PENSION SCHEME OR PROVIDENT FUND Contributions paid by a non-taxable employer to unregistered pension scheme or excess contributions paid to a registered pension scheme. 4. The declaration so signed will serve as verification and confirmation by the employer that the employee does not directly or indirectly own interest in a permanent house. If any person occupies any premises for residential purposes for part of a year of income the allowable deduction shall be limited to the period of occupation. (16) OWNER OCCUPIED INTEREST . 48.(Four thousand shillings) per month or Kshs.which he occupies for residential purposes. The amendment is effective from 1st July 2004.per annum in respect of funds deposited in “approved Institution” under "Registered Home Ownership Savings Plan". an Insurance Company licensed under the Insurance Act or a Building Society registered under the Building Societies Act". The amount of interest allowable under the law must not exceed Kshs. 30% of pensionable income.150. (15) HOME OWNERSHIP SAVINGS PLAN A depositor (employee) shall in any year of income commencing on or after 1st January. provident fund or individual retirement fund. shall be employment benefit chargeable to tax on the employee. 12.- Contributions to Individual Retirement Fund The percentage rate has been increased from 20% to 30% of pensionable income of the individual to be line with employer registered retirement schemes.000/. Kshs. The amount must have been borrowed to finance either:(i) (ii) the purchase of premises or improvement of premises . 20.Means a Bank or financial institution registered under the Banking Act.000 per month (or Kshs. 1999 be eligible to a deduction up to a maximum of Kshs. provided that:Employer has evidence to confirm that the Home Ownership Savings Plan with which employee wants to save is registered by the Commissioner of Domestic Taxes. On the other hand no person may claim a deduction in respect of more than one residence. 240. The allowable deduction shall be the lesser of:The actual contribution made by the individual.

500 per month. main employment).he has paid premium for an insurance made by him on his life. 1. Individuals serving several employers qualify for personal relief from only one employer (i.162 per month (i. 12.e. (17) (a) PERSONAL RELIEFS Monthly Personal Relief – Kshs.In view of this. or the life of his wife or of his child and that the Insurance secures a capital sum.162 (with effect from 1st January 2005) A resident individual with taxable income is entitled to a personal relief of Kshs. 36. ♦ The employee shall sign a declaration indemnifying employer against any false claim in this respect ♦ Employers are expected to review their pay-rolls starting from the month of September and make necessary adjustment to ensure that by the end of year correct amount of interest have been allowed ♦ The employer shall attach to Form P9A Photostat copy of interest certificate and statement of account from the specified lending institution. 13. she has the option to claim for deduction of interest paid provided that the property is registered in her name. 150. The financial institutions specified under the fourth schedule of the Income Tax Act include:A bank or a financial institution licensed under the Banking Act. Kshs. ♦ Where the employee redeems such loan in the course of the year and no interest is subsequently payable such allowable deduction shall cease forthwith upon redemption of the loan. For the month of December.000 per month (or Kshs. payable in Kenya and in the lawful currency of Kenya. This is a uniform relief and employers are advised to automatically grant personal relief to all employees irrespective of their marital status. or - . An insurance company licensed under the Insurance Companies Act. The amount of interest to be allowed as ascertained under his condition must not exceed Kshs.000 should be allowed in the month of December. Employers will be required to ascertain and allow interest paid on money borrowed to finance owner occupied residential premises under the PAYE system subject to the following conditions:♦ The employer should allow actual interest paid by eligible employee on production of certificate from the lending institution confirming interest payable on the loan for that particular year. The example given under Appendix 2A assumes that an employee paid interest amounting to Kshs.e. 3. all the monthly interest allowed should be added together and only the difference between this amount and the annual allowable deduction of KShs.. or his employer paid premium for that insurance on the life and for the benefit of the employee which has been charged to tax on that employee. A building society registered under the Building Societies Act. 1.000 per annum) if he proves that.944 per annum). Employer must obtain a signed declaration to the effect that she is the one claiming the deduction to avoid her husband making a similar claim. NOTE: o Interest which has accrued but not paid does not rank as an allowable deduction for this purpose. o Form P9A has been designed to accommodate the changes – See appendix 2A. (b) Insurance Relief with effect from 1st January 2003 A resident individual shall be entitled to insurance relief at the rate of 15% of premiums paid subject to maximum relief amount of Kshs. 150.000 or more during the year.

premiums payable and commencement date of the policy.200 per annum i. The commencement date of the policy is 1st January. 2006 is Kshs. The insurance relief allowable in the payroll from the month of January will be calculated Kshs.915 2. 48. Balance Kshs.provided that.000 Less Monthly Personal Relief PAYE to be deducted . 1.016 1. 40.Notes: Employees must avail to the employer a certificate from insurer showing particulars of the policy e. 9. no relief shall be granted in respect of part of premium for an insurance which secures a benefit which may be withdrawn at any time at the option of the insured.000 will have his PAYE tax calculated as follows.000 ………………………… * * * * * First Next Next Next Kshs.Tax charged on chargeable pay Kshs. (18) MONTHLY TAX TO BE DEDUCTED To arrive at monthly tax to be deducted:(i) (ii) Example: “B” whose monthly chargeable pay for January. 48. name of insured. premiums paid for an education policy with a maturity period of at least 10 years shall qualify for relief.e. maturity date. 40. Employers should review their pay-rolls towards the end of the year and make necessary adjustments to ensure that the correct relief had been granted. 40. 9. 9. (ii) Example: An employee X has furnished a Life Assurance Policy Certificate showing annual premiums payable of Kshs.576 at 15% Kshs.162 5.931 charge tax on chargeable monthly pay per monthly tax tables deduct from tax charged monthly personal reliefs.000 x 15% = 7. Only premiums paid in respect of an insurance policy taken on or after 1st January. (i) Employer shall attach a copy of the certificate furnished by insurer. confirming premiums paid and that the policy was still in force to the employee’s P9A. type of policy. 2003.108 at 30% TOTAL KSHS. For the purposes of insurance relief “child” include a step child and an adopted child who was under the age of eighteen years on the date the premium was paid.2003 shall qualify for relief.436 1. capital sum payable.164 at 10% Kshs.576 at 20% Kshs.093 1.394 332 7. 600 per month which will be entered in the appropriate column of Tax Deduction Card (P9A). 1.000. 10. P9A (HOSP) Tax deduction Card for that year. P9B.g.576 at 25% Kshs. No relief is available in respect of insurance policy that elapsed in the course of the year.

9 must be prepared for every employee liable to tax (see Part III. 2C. However. Upon final completion after the year end. Example (Terminal Dues): Mr. such income is deemed to be income of the year of accrual. the income is to be treated as that of year of income which expired 5 years prior to the year in which the income is received or prior to the year of income in which employment ceased. and PAYE tax deducted each month throughout the calendar year and payments for past years on the reverse side. The time the Income is received is. The following is a Guide to Employers on how to compute tax on lump sum payments:1. 2005 e. This formal notification is known as the "Monthly Pay Slip" and may be in any form convenient to the employer provided that the above information is given. payment in lieu of leave. 90. gratuity. immaterial. 660.000. monthly personal relief. commission.000 for his 20 leave days not taken for the year 2005. of gross pay. (21) PROCEDURE ON LUMP SUM PAYMENTS (Gratuities. entertainment or any other allowance received in respect of employment or services rendered. PAYE Tax deducted. (20) TAX DEDUCTION CARDS (P. three months notice pay Kshs. Every Employer has an obligation under section 37 of the Income Tax Act to recover appropriate tax from any lump sum amount before releasing the difference/balance to the employee. over the period it has been earned and become due for payment. salary. chargeable monthly income.1A. Peter Bakari left employment in September 2006 after 30 years of service and was paid severance pay/service gratuity of Kshs. Where an amount is received in respect of employment or a service rendered in a year of income different from the year of accrual.9) This form is supplied to the employer by the Income Tax Office free. This is expounded by section 5(2) which spells out that gains or profits from employment includes: wages. etc. it is returned to the Income Tax Office.000 and Kshs. 3C and 4C.) A:.General Employment income is assessable on accrual basis. Income from employment or services rendered is chargeable to tax under section 3(2)(a)(iii) of the Income Tax Act. Bonuses. together with P10. subsistence. Details of the operation of the card are found on 1C. Employment Income Treatment . bonus. P10A and P11 copy as PAYE end of year return. benefits. For the purposes of calculation of tax payable.(19) MONTHLY PAY SLIP Every employer is required to provide each liable employee on payment of remuneration with a written statement showing: (i) (ii) Monthly pay. paragraph 1). It provides for the recording.c). . 25. Specimen cards can be found on Appendix No.t. housing. the service gratuity amount is to be spread backwards and taxed together with income earned in the relevant years but notice pay is assessable in the period immediately after date of leaving employment and pay in lieu of leave should be taxed in the year to which the leave days relate (i. 3A and 4A.Notification Employers are no longer required to notify the Tax Department before making payments of terminal benefits to the employees upon leaving their employment. therefore. there is a provision which states that where the year of accrual is earlier than 4 years prior to the year of receipt.e. fees. travelling. that is. A Form P. 2004.

. It should be noted that any lump sum payment relating to the year of income 2000 and prior years is assessable in 2001 being the 5th year prior to the year of receipt (2006) as per example in Table (i) above). 137.000 22. Following the amendment to proviso (i) and (iii) to section 5 (2) (c) the determination and method of assessing compensation received on termination of contract shall be as follows:- 2. Use annual individual rates of tax. whether voluntary or obligatory made to a person to compensate him for the termination of his contract of employment or services.000 22. Deduct personal relief for the year Deduct total PAYE deducted and already paid – (per P9A) The balance is tax payable on the Lump Sum. Leave pay should be assessed in year to which it relates.The procedure on how tax should be calculated is outlined below:Breakdown of Lump sum payment Year 2005 2004 2003 2002 2001 Service gratuity Notice pay Leave pay Service gratuity “ “ Taxable Amount Kshs. If termination of employment occurs in the course of the year. 22.000 22. whether the contract is written or verbal and whether or not there is provision in the contract for such payment.000 for 2000 & prior years. the portion of lump sum payment for that period is taxable in that particular year.e. Compensation for Termination of Employment Liability extends to any payment. This method of calculating the tax should be followed for all the years involved so as to arrive at the total tax due and payable on the terminal dues. notice pay) is assessable in the period immediately after the date of termination of employment. * Calculation of Tax on Lump Sum (i) (ii) (iii) (iv) (v) (vi) Take total taxable pay for the year as per the Tax Deduction Card (P9A).000 plus Kshs. Add Lump Sum amount for that year Calculate tax chargeable on the revised total taxable income – (i) + (ii).000} 25.000} Total Kshs.000 22. Calculate the tax for each year using annual rates of tax and then add up tax for all the years involved to arrive at total tax to be deducted from the lump sum payment. IMPORTANT Pay in lieu of notice (i. 550.000} 90.

e.000 is paid. Compensation of Kshs.) 500. The contract is terminated on 31/12/2005 and Kshs. amount received as compensation shall be deemed to have accrued evenly over three years period immediately following termination of contract.000 as compensation in the event of termination. amount received as compensation on termination of contract shall be deemed to have accrued evenly and assessed over the unexpired period. The compensation is spread forward and Kshs.000 500.000 Where the contract is for an unspecified term and provides for terminal payment.100.000 550. the amount paid as compensation is to be spread forward and assessed at the rate equal to employee’s remuneration per annum received from the contract immediately before termination. Personal Relief should not be granted in advance before commencement of any year of income.000 in year 2007 and balance shs.300.Methods of Spreading Compensation (i) Where the contract is for a specified term. 300.000 • The amendment is effective from 1st July 2004 NOTES The methods outlined above apply to all employees including whole time service directors. (iii) Where the contract is for unspecified term and does not provide for compensation. the amount is to be spread forward and assessed evenly in three years as follows:Year 2006 2007 2008 Taxable amount (Kshs. Example: A contract for an unspecified term provides for payment of Kshs. Example: A contract is for an unspecified term with no provision for payment of compensation. 1. Use the current rates of tax (i.000 compensation is paid. The amount will be spread evenly and assessed in the remaining period of 2 years as follows:Year 2006 2007 (ii) Taxable Amount (Kshs. Example: A contract for five years is terminated on 31/12/2005 after it has run for 3 years. The effect of the amendment is that any amount paid as compensation on termination of contract shall be taxed in full.1. If an Ex-gratia is paid it would be assessable in the year of receipt. 700.500.) 550. It is terminated on 31/12/2005 and the employee's rate of earning was Kshs. 300. 2006) until subsequent years rates are enacted.000 in year 2008.100.000 per annum.000 500.000 is assessed in the year 2006 shs. .

B:. IS WORKED "B" is employed as an Accountant at a salary of Kshs. Tax charged on chargeable pay Kshs.436 52 2. e.B.A. In respect of compensation for loss of office.Y. will not normally be subject to deduction of tax when made.g.Y.000. deducted for the period to which the lump sum payment relates (subject to a limit of 5 years in the case of gratuity). 9. Gross amount paid to each employee.162 PAYE to be deducted…………………………………………… 1. 10. C:.E. salary advances to an employee. Amount of tax deducted and paid (attach a "Lump Sum" Photostat copy of relevant P11 – see . the (vii) N. However.: Other advances of cash. the amount of tax involved should be shown separately from the normal PAYE deductions and the nature of payment also indicated in the space provided in the P11. Kshs. In the month when such advances are recovered.000 1.Employers are required to submit a list of names of all the employees who have received lump sum payments within 14 days after making payment indicating:(i) (ii) (iii) (iv) (v) (vi) Names of employees and their PIN numbers. * * * First Next Total Kshs.Payment of Tax deducted from lump sum payments Tax deducted from the lump sum payment must be paid to the Pay-Master General using Paying. Nature of payment and the period to which it relates. Employee’s gross earnings per annum and P.A.In Credit slip.164 at 10%……………………………………… 1. His personal relief is Kshs. (22) (i) HOW P.E.576 at 15%……………………………………… Kshs. 20. 260 at 20%……………………………………… Less monthly personal relief ………………………………………1.20. Employer should state the employee's rate of earning per month/per annum for the period immediately prior to termination of employment. 20.342 . The employer enters on a Tax Deduction Card chargeable monthly pay Kshs.504 The broad outline of the scheme is illustrated by the following two examples: Balance Kshs. Employee’s last date of service.000 per month.016 Kshs.000……………….(P11) as the normal PAYE remittances. 20.C below).1162 per month. the tax deductions will be calculated on the full pay of the month before deduction of the amount to be recovered.

.. . .. 9. . ...773 1. .P.016 20. .. . . .... . .. . . .... . ... . Next Kshs. . . .600 ……………………………… * * * * * * First Kshs. .. . . . ... .. .. 40.. .. . ... Car . . 36... as follows:1.... credit slip paying-in-Book .. .708 at 30% ………………………………………. .E.. .. .. . .000 10.. . . ..000 75. . ..576 at 15% ……………………………………………... 9..600 ……………………………………………… Less monthly personal relief ………………………………………. .... .915 2. . .... .. . . PAYE to be deducted ……………………………………………… Show Computation of Benefits on the reverse side of P..611 1. . ..012 17. .... ... . . . . . .. ... .. . . . . . .... . . . .. ..... ... ... ..000 x 2% per month) .... .. ... . .. . ... Total Kshs.. .. . . .. Form P.. .600 Housing at 15% x 55....600 The tax deducted is paid over by the employer before the 10th day of the month following the payroll month using P..000). . . 9.164 at 10%……………………………………………... .. ....000 1.... .... . .. .. .. Kshs Monthly cash pay .. ... 20. The entries on a Tax Deduction Card. .. ... .. .... .000 15. Balance Kshs.500 600 1.. . "B" and "X" are given Monthly Pay Slips showing their monthly income and amount of tax deducted.000 per month.9A... . Water .. Kshs Watchman (Night) .. .. .. . . . . . .. 20. ........ . ... . . . Next Kshs. . ... .394 11. 75. . ... . .. Tax charged on chargeable pay Kshs.. ... . . . . . .. . .... .... . ..... . .... .. . . . . .600 = 8. . .. . ..340 (charge actual rent paid Kshs. . In addition his employer provides him with the following benefits: (a) (b) (c) (d) (e) Night watchman House Servant Nissan Saloon car 1591 cc Free electricity Free water The employer has also provided housing – (leased premises – monthly rent Kshs..576 at 20% ……………………………………………. . Next Kshs... . ..11 (see Part iv)... ..000) Taxable pay of the Month ...436 1.A.. 2.... .. ... .. ... .. 500.. .. .. . .9A will be as follows..(ii) "X" is employed as a general manager at a Basic salary of Kshs 40.. Add benefits . . .600 55.... . . ..Y.. .162 16. .. .576 at 25% ……………………………………………. . . . .. .600 KShs. ... . 75. . . ... . ... . 10... ...500 15.. .. .. .. . . Total Benefits per month. . .. House Servant . Electricity . . . ... . . . . .(cost Kshs... ..

1B. EMPLOYER WISHING TO USE OWN TAX DEDUCTION CARDS Where an employer wishes to use his own Tax Deduction Cards.135/=. CHECK DOCUMENTS RECEIVED The PAYE documents received from the Income Tax Office should be checked properly to ensure that the quantity supplied is adequate and that none is missing. P. the monthly emoluments exceed Kshs.9A All employees whose earnings in cash exceed Kshs. IC. EACH YEAR 1. 2A. (iii) FORM P9B This card is used in circumstances where the employer bears the burden of tax on behalf of the employee. P9B Form P. every known employer will be expected to collect sufficient quantity of PAYE stationery which are necessary for the operation of the PAYE scheme.4A to 4D for P9B ) 2.000 or more per month which together with cash pay. if employer is aware that the employee has income from main employment elsewhere. However. LIABLE EMPLOYEE LEAVING When an employee is leaving employment. (Completed examples of the P9 cards.PART II WHAT THE EMPLOYER SHOULD DO BEFORE 1ST JANUARY. A fresh application is not required every year once approval has been granted. and employees in receipt of non-cash benefits. then Income Tax Office should be notified immediately.E. (i) above). (i) above). in addition to the conditions for P9A (No. Head Office.3B for P9A(HOSP) and Appendix 4. 3. PART III TAX DEDUCTION CARDS 1. he must apply to the Commissioner of Domestic Taxes. valued at Kshs.O. 3. 2. for approval. An employer may use Tax Deduction Cards which are marketed by any Business consultant firm provided that the Commissioner's approval reference has been printed on the card.A.11135/.2B and 3A.per month is liable to PAYE. All Company Directors. Box 30742. (i) a) P9A.2 of the questionnaire on the Reverse side of the Tax Deduction Card. Nairobi. whether receiving benefits or not (if not receiving benefits a "NIL" certificate is required on the reverse side of the card at the end of the year) FORM P9A (HOSP) This card is used where employee is eligible for a deduction in respect of funds deposited in approved Institution. Any individual whose gross pay plus benefits including housing provided by employer exceeds Kshs. with notes are illustrated at Appendix 1A.11. The employer should pay particular attention to item No.Y. P9A (HOSP).11135/. 11.135/= per month. then PAYE should be deducted even though the earnings are less than Shs.per month. There are three types of Tax Deduction Cards:- b) (ii) . It is not therefore necessary for such employers to file separate applications to the Commissioner. 3. under "Registered Home Ownership Savings Plan". in addition to the conditions for P9A (No. up to the date of leaving and including the final payment of remuneration. DOCUMENTS TO BE SENT TO EMPLOYERS Before commencement of each year. WHO IS LIABLE FOR P. his employer must complete the employee's Tax Deduction Card. If any of the forms are missing or additional supplies are required.

TAX TABLES Monthly Tax Tables (Revised 2006) contained in this Edition will be used for all months during the year and will continue being used in subsequent years unless they are revised by the Minister. 15.(Para 13) OF Part I In case of difficulty. 7. While employers have a duty to grant the employees the correct tax reliefs and deductions and calculate the tax accurately.000 per annum) from a registered pension fund is free of tax and should not be entered on the Tax Deduction Card. please contact the nearest Domestic Taxes Department office.(Para 17(b) Owner Occupied Property Interest deduction . Any late payment of emoluments.The Tax Deduction Card should be retained by the employer until the end of the year. NOTE: 5. NEW EMPLOYEE For a new employee whose emoluments exceed the amounts stated in Paragraph 3 of Part II. Date of cessation is the last day up to which the employee has been paid. Where errors are later detected necessary adjustments should be made within the same year and the Commissioner informed accordingly.(Para 16) Defined Benefit/Contribution Benefit deduction . bonus. commission made in a month after the employee has left employer should be taxed without any monthly personal relief. EMPLOYERS CERTIFICATE OF PAY AND TAX (P9A. The guide is clear on the requirements and procedures for granting reliefs and deductions. Where an employee retires on pension and continues to reside in Kenya he should not be treated as leaving the employment. P9B which will serve as a "Certificate of Pay and Tax deducted".P9A. the employees too have an obligation to avail the necessary documents in support of the claims to their employers.000 per month (or Kshs. The tax reliefs and deductions that the employer should incorporate in the PAYE calculations are as follows: Personal relief – (Para 17(a) of Part I Insurance Relief . if the pension is paid by the former employer. Many of these claims should not arise if the employers grant reliefs as per this Guide. The Domestic Taxes Department has continued to receive numerous refunds claims from employees against employment income. It is equally important to ensure that monthly PAYE tax computations are accurately done.g. the employer should grant personal relief effective from the month of commencement of employment. This revised amount became effective from 1st July 2004. Employers are reminded that Form P39 are no longer in use. arrears of pay. NECESSARY ADJUSTMENTS DURING THE YEAR. 180. When a liable employee leaves employment the employer should prepare and hand over to the employee a certificate of pay and tax showing details of pay and tax deducted up to the date of cessation. However. P9A (HOSP) & P9B) At the end of the year employer should give to the employee a certified copy of the Tax Deduction Card . 6. • 4. e. . P9A (HOSP). it should be noted that the first Kshs.

E. The method of paying-in is summarized on the front cover of each Paying-in Book to remind employers of what has to be done. Employer's Personal Identification Number (PIN) must be shown on all the three copies of P11s.A.Y.Y. P.100 or until December. (PERSONAL IDENTIFICATION NUMBER).A.P11). INTEREST AND PENALTY Employers are required to make payments of tax recovered from Lump Sum amounts. offences to the Pay-Master General using Paying-In-Credit Slip .100. Payroll month or whatever payment is applicable. (Where the total amount is less than KSh. and then paid-in). P.Y. the amount of tax involved should be shown separately from normal P.P11 in the usual way as normal monthly P. the employer must complete the relevant portions of the top copy of a Credit Slip and send it direct to his Income Tax Office before the tenth day of the month following. leaving the last copy in the book as acknowledgement to the employer for his records.N. deductions . tax deducted from his employees' pay on or before the 9th day of the month following pay-roll month. 2.Y.E.E. (see item number 4 below) Each employer is supplied with a P.11: i) ii) iii) Employer's Name Current Postal Address Telephone Number b) Show at the Top Right Hand Side of the P. 3 PAYMENT OF TAX DEDUCTED FROM LUMP SUM. All three copies of the monthly set should be completed in every detail and signed by the employer.for reasons of remoteness or distance from a bank. If the total amount of tax deducted from all employees in any month is less than one hundred shillings or when no tax has been deducted.A. NOTE: a) Show the following information at the bottom right hand side of the P.A. Failure and/or late P. Bank tellers will stamp all three copies and remove the top two. to the branch bank at which he maintains an account.i.Y. SPECIAL ARRANGEMENTS FOR REMOTE AREAS If an employer finds that he is unable to make his monthly payments by the due date .Y.I. Audits. In such cases.PART IV REMITTANCE OF TAX 1. HOW TO PAY-IN THE TAX DEDUCTED The Law requires an employer to pay-in the P. The remaining two copies in the monthly set should be left in the Paying-in Book. he should make full representations setting out all the relevant facts to the appropriate Income Tax Office.E.E. tax deducted exceeds shillings one hundred the employer should pay the tax deducted in respect of his staff once monthly. Credit Slip Paying-in Book (Form No. If he has no bank account.E.Y. In the case where the P. remittances. 2.E. Kenya". tax established through P.A.11: 1.A.Y.E payments will incur penalty at the rate of 20 per cent of amount paid late as per Section 72D and interest at 2% per month per section 94(1). AUDIT TAX.E.Y. whichever is the earlier. it should be carried forward to later months until it exceeds KSh.e before the tenth day of the month following the month of deduction . penalty or interest imposed for P. Cheques should be drawn payable to "Paymaster-General.A.A. he may pay in to any bank but such payments will only be accepted in cash.A.

Penalty on Unpaid Tax – Section 72D Interest on Unpaid Tax – Section 94 (1) The penalty is at the rate of 25% of the amount of tax involved or Kshs. A late payment interest of 2% per month or part thereof shall be charged on amount of PAYE tax.11. If the employer discovers the error after the end of the year or if for any other reason he cannot correct the mistake. A penalty of 20% will be levied on PAYE tax remaining unpaid after due date.Y. penalty by the Commissioner within 30 days after the date of service of the notice.Y. The total of this list should agree with amount remitted by the employer as recorded on his copy of Form P. This list should either be in pay-roll or alphabetical number order and should be retained in case it is required for any purpose including Income Tax Audit.000. PENALTIES An employer may appeal to the Income Tax Local Committee against imposition of P. whichever is greater.A. Place an asterisk (*) next to correcting entry in the following months and explain how the error was corrected in the margin or overleaf.Y. 10. PART V END OF THE MONTH PROCEDURE 1. . then the attention of the Income Tax Office should be specifically drawn to the error. including the penalty remaining unpaid for more than one month after the due date until the full amount is paid.i) ii) iii) b) c) to deduct tax upon payment of emoluments to an employee to account for tax deducted to supply the Commissioner with a certificate prescribed under PAYE Rules. PROVIDED THAT:i) ii) Employer shall first pay all the tax due plus the penalty imposed prior to lodging the appeal.Section 37 (2) The Commissioner may impose a penalty under Section 37 (2) of the Income Tax Act if an employer fails.A.E. ARITHMETICAL OR OTHER ERRORS ON TAX DEDUCTION CARD Entries made on the Tax Deduction Card cannot be altered in any manner. The determination of the appeal shall be limited to the question of whether or not employer had complied with the provisions of Section 37 of the Income Tax Act and the P.4.E. 2. a) EXTENT OF PENALTIES AND INTEREST PAYE Offences . Rules relating to the deduction of tax from employees' emoluments.A. APPEAL BY EMPLOYERS AGAINST P. 5.E. NOTE The Income Tax (Local Committee) Rules shall be applicable in this respect. LIST OF EMPLOYEES The employer should at each month-end list the names of employees from whose pay he has deducted tax together with the respective amount of tax. Corrections can be made in the following months in the same year as follows: (a) (b) Place an asterisk (*) next to the incorrect entry and explain the error in the margin or overleaf.

PART VI END OF THE YEAR PROCEDURE 1.Y. P9A (HOSP). Names and address of old and/or new employer. EMPLOYERS CERTIFICATE . Dates on which the relevant payments were made to the bank must also be shown in the space provided (Appendix 5). remittances. employers are required to show the total tax paid in respect of :Lump sum payments. (c) SUPPORTING LIST .A.A. RETURN OF DOCUMENTS TO DOMESTIC TAXES OFFICES ON OR BEFORE 28TH FEBRUARY . OBJECTION BY EMPLOYEES If an employee is not satisfied that the amount of tax deducted by his employer is correct. DOCUMENTS (a) TAX DEDUCTION CARDS .t.10B – FRINGE BENEFIT TAX RETURN Since Fringe Benefit Tax is payable by employer. Interest and Penalty (Appendix 5A).A. (P9A HOSP) or P9B.Y.A. Compensation for loss of office e.10B to show names of the employees involved. Details of benefits provided. COMPLETION OF P. if known. Bonuses.E.E. End of Year documents. Audit tax. P.(P9A. at the back of the Tax Deduction Cards. Employers are therefore required to submit a return to the Department at the end of the year using Form P. 2. Audit.Y.c v) (b) Details of rent paid by employee towards housing.10B) should be submitted by employer together with other P.FORM P10 Employers should give details of normal monthly P. taxable fringe benefit values and amount of tax paid.9A. The employer will continue to deduct tax on the basis of his calculations until the Commissioner rules on the objection.E. iv) The amounts and details of any pay from which tax was deducted which relate to an earlier or later period e. The fringe benefit tax return – (P. Interest and penalty. (d) FORM P.9A.3.FORM P10A In addition to giving details of tax deducted for each employee per the Tax Deduction Cards – P. P9B At the end of each year employers should fully complete the questionnaire on every Tax Deduction Card showing:i) ii) iii) Dates of commencement and leaving of employment.Y.g.E. loan amounts. rate of interest charged by employer. if any. he should be advised to seek advice from the Domestic Taxes Department. gratuities. the details of the fringe benefits and tax paid thereon should not be reflected on the employee’s Tax Deduction Card – P. separately from other payments made to the Pay-Master General relating to tax on lump sum payments.

should be submitted.P. P9A(HOSP).E.9A The calculation of benefits on the reverse side of each P9A (Tax Deduction Card-Benefit Cases) must be completed and signed by the employer at the end of the year. 3.9B) for all the employees whom tax had been deducted from their pay during the year. cash allowances and benefits. wherever they may be. gross amount received. Employers will be expected to make all records relating to P. CERTIFICATE OF PAY AND TAX (P9A.A.Y.The following documents which comprise P.Y.E. b) The employer has deducted correct amount of P.credit slips (P11s) for the year. NOTE: All Employers are notified that only ONE set of P. tax. AUDIT PROCEDURE The Domestic Taxes Department may send officers to employers’ paying points during the year to check that they are operating the scheme correctly and to give guidance to employers if they are in difficulties.Y. END OF YEAR RETURN in respect of all employees. The Department therefore expects all branch returns to be forwarded to the company's Head Office from where one consolidated return will be made. CALCULATION OF BENEFITS ON REVERSE SIDE OF P. tax was deducted at any time during the year.E.10 (2 Copies) Supporting list to End of Year Certificate (P. P.E.E. e) The Tax Deduction Card has been correctly completed. Photostat copies of ALL the pay – in .A.10B).Y.9A.A. Any such officer will produce a signed authority. a check that: a) The employer has brought into the payroll all the employee's emoluments. Tax Deduction Cards (9A. A list of all the employees who received lump sum payments during the year indicating their full names. The total of benefits as calculated should agree with the total at column "B" of P9A. Certified copies of Forms P9 should be distributed to the employees representing certificate of pay and tax for the year. It should be noted that in the case of a director who is not receiving benefits a "NIL" entry should be made by the employer against each item on the "Benefit Calculation". 4. End Of Year Return should be submitted to the relevant Domestic Taxes Office on or before 28TH FEBRUARY (a) (b) (c) (d) (e) (f) Employer's Certificate .A. P9A(HOSP) & P9B Immediately after 31st December each year the employer should prepare a Tax Deduction Card (P9A/P9AHOSP/P9B) for each employee from whose salary P. operation available for inspection. . 5. Where it does not agree a written explanation should be attached to P.A. The audit process will include inter alia. relevant years and amount of tax deducted.9A is shown on Appendix 1B.10A in duplicate) Fringe Benefit Tax Return – (P. d) The pay shown in employer's salary records has correctly been transferred to the Tax Deduction Cards.Y. An example of the reverse side of P. c) The tax deducted has all been paid over to the bank.

fortnightly or at any other interval.000 8.000 Kshs. to an employee in the month is less than the whole of the tax for the month. Such employees should be granted monthly personal relief by the employer at their main source of employment income. e.A. etc). etc.E.A. The employer should write a covering note on the back of the Tax Deduction Card showing how the tax deducted at the later date has been computed and accounted for. (a) ARRIVAL.1.104 1. Enter column (J) tax charged ………………………………………… Enter column (K) for January (monthly personal relief) ……….1. Fortnightly salary (tax to be deducted) ………………. 3. IRREGULARLY PAID EMPLOYEES P. departure or expiration of leave. leaves Kenya permanently or proceeds on leave pending permanent departure from Kenya will. the employer will recover the balance of tax from the next payment of salary. Tax due on the whole of the monthly pay will be deducted from the last payment. No housing is provided. 4.162/-. He is a resident individual entitled to monthly relief of KSh.PART VII SPECIAL CASES 1.g.Y. Thus if employees are paid weekly.1.2005 15. a person with several directorships or a person with several part-time employments not falling within the definition "casual employment" (see Part 1.2005 December 2003 commission (no tax deducted)…………… Fortnightly salary (no tax deducted) …………………. MULTIPLE P.E. the entry of pay on the Tax Deduction Card for the month will be the total of payments in the month and will be made on the occasion of the last payment. Total Tax Deduction Card Entries: Enter column (A) for January (monthly pay) Kshs.2005 31. if an employee arrives in Kenya on 15th August. 10. CHANGE OF PERSONAL CIRCUMSTANCE DURING THE YEAR 2. (b) A resident individual who dies. Thus. paragraph 1. 28. 4.1. etc.A..162 10.000 . DEPARTURE OR DEATH DURING THE YEAR Where a person becomes resident in Kenya during the year he is granted a proportion of the year’s personal reliefs to which he is entitled commencing from the first day of the month in which he becomes resident. he will be entitled to a whole month's relief against any emoluments paid in August. tax basically is deductible from all payments made in any month.Y. to the employee. during the year of income in which death occurs or departs. provisions. The amount of personal relief to which an individual is entitled for any one year will remain the same throughout the year regardless of the employee's change of marital status since the personal relief is uniform to all individuals with taxable income.E. be deemed to have been resident in Kenya only for the number of months up to and including the month of death. Example: Employee is a commercial traveller paid on a salary plus commission basis.000 10. Kshs.Y. SOURCES OF INCOME There are employees who have two or more sources of income which fall within P. and enters employment.000 28. Where exceptionally the last payment of salary.

Collect and Account for revenue under the Widows and Children Pension Act Cap 195 and the Parliamentary Pensions Act Cap 196. should continue to be operated in the normal manner substituting "pension" for "pay" on the Tax Deduction Card. The tax free monthly pension has been increased from Kshs.E.Y.Employer will recover Kshs. The respective total for the year should be shown at the end of the listing.Y.A. . 15. NOTE: Quite apart from contributions towards the funds the new P.15.196.Y.E. The cheques for the contributions should be drawn in favour of the Paymaster General. Here the total monthly remittances of the contributions should be listed to cover the return period normally for 12 months in a calendar year.000 per month with effect from 1st July 2004.11 specifically provides for separate remittances of both penalties and interest imposed under the Income Tax Act. Thus the twelve months total should be entered at the bottom of the relevant column on Form P10 certificate. However. 5.500 per month to Kshs. tax deducted. the first KSh. OF THE LAWS OF KENYA The Government Ministries and National Assembly will continue to deduct contributions towards the funds as in the past.195.E. AND CAP. system of collection of tax.A.A. PENSIONERS Where an employee retires on pension from his employer and continue to reside in Kenya. 12. As a first step in the direction the Kenya Revenue Authority decided to monitor the remittances and operations of the two pension funds under P. (ii) FORM P10A (SUPPORTING LIST TO EMPLOYERS CERTIFICATE) An additional column introduced to cater for total annual contribution towards the fund by individual contributors is incorporated under the Form P10A supporting list. monthly summary remitted. Form P. P. 2. (b) (i) RETURNS OF CONTRIBUTIONS FORM P10 (EMPLOYERS CERTIFICATE) Employers Certificate follows the same pattern of P.11 alongside P.942 from salary payable on 31st January and account for this tax in his January payment. This column will affect all employers. 1999 the remittances and accounting for the two funds adopted the following procedure:(a) REMITTANCES OF CONTRIBUTION UNDER CAP.A.11 has been revised to accommodate the change and separate column for remittances have been provided for the purpose. 6. With effect from January. This means against each name in the list there should be total P. However the Kenya Revenue Authority requires that such contributions be remitted through revised Form P.E. APPLICABLE TO CIVIL SERVANTS/MEMBERS OF PARLIAMENT The Kenya Revenue Authority Act was amended to include responsibilities to Assess.Y.Y. The Government Ministries and National Assembly have so far been preparing cheques and list of contributions for both payment and transmission of information to the Pensions Department of the Treasury.000 per month of pension is free of tax and should not be included on the Tax Deduction Card. 1999 payroll month the procedure of payments and returns to account for the money contributed changed.E. tax deducted and alongside separate amounts of contributions under the funds. Effective from 1st January.A. he should not be treated as leaving the employment.

but the employer after the change shall not be liable for payment of tax which was deductible from emoluments paid to the employee before the change took place. pencil should not be used.7. CHANGE IN EMPLOYER Where there has been a change in the employer from whom an employee receives emoluments in respect of the same employment. DEATH OF AN EMPLOYER If an employer dies. the person on whose behalf he paid those emoluments. in relation to a matter arising after the change. PART VIII MISCELLANEOUS 1. the employer must carry out the end of year procedure and submit all documents as instructed in Part VI within thirty (30) days from the date of cessation. be liable to do anything which the employer before the change would have been liable to do under these Rules if the change had not taken place. Employers reconciliation of the End of Year Documents must be carried out to cover the two respective deductions and any shortcoming rectified well in advance of submission of the documents. or.e. or if no person succeeds him. i.A. in the case of an employer who paid emoluments on behalf of another person. by the person succeeding him. the employer after the change shall. COMPLETION OF FORMS All information. CESSATION OF BUSINESS Where a business ceases during the year. APPENDIXES . 2. anything which he would have been liable to do under these Rules shall be done by his personal representatives. written on P.Y. 3.E. 4. documents should be in a permanent manner. RECONCILIATION OF RETURNS For the purpose of accurate returns to the Department.

COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Column e1 Column e2 Column e COLUMN G COLUMN H COLUMN J COLUMN K COLUMN L. Column D less Column G. 1. Enter Basic salary plus all cash allowances. 3 VALUE OF QUARTERS/HOUSING: Refer to Item (8) of Part I. Enter the lesser of Column (e1). 20. (e2).e. (e2). Enter balance pay of month after contribution/defined benefit i. Enter tax calculated in accordance with the Rates of tax provided in this Guide Book. 2005. (e3). (e3). 3 - END OF YEAR Finally enter the total of column (H) and (L) into space provided.000/= per month.APPENDIX 1C HOW TO FILL IN THE TAX DEDUCTION CARD P9A (BENEFITS AND QUARTERS) 1 MONTHLY PERSONAL RELIEF: Monthly personal relief to any resident individual is Kshs.162/= per month with effect from 1st January. Enter monthly Personal Relief. . Enter Benefits (if applicable) calculated on the reverse side of P9A If housing is provided by employer enter 15 per cent of the amount in Column A & B less the amount of monthly rent paid by employee or actual rent paid (see example in Part I item (21) ) Enter total Gross pay of column A + Column B + Column C. Enter the fixed monthly limit which is Kshs. 2 BENEFITS: Rates of benefits are to be found in paragraph (6) and (7) of Part I and Appendix 7 of this Guide Book. Enter defined contribution/benefits calculation per column (e1). Enter actual amount of contribution made by the employee. Enter 30 per cent (30%) of pensionable monthly pay per Column (D). Enter PAYE tax less relief (Column J – K).

Enter Housing Benefit where applicable. 2005.per month. Enter tax charged in accordance with the Rates of tax provided in this Guide. 2 BENEFITS: Rates of benefits are to be found in paragraph (6) and (7) of Part I and Appendix 7 of this Guide Book. Enter the standard amount of allowable interest of Kshs.000/. Enter actual amount of contribution made by the employee. Enter 30 per cent (30%) of pensionable monthly pay per Column (D). Enter balance pay of month after Retirement contribution and owner occupied interest i.162/= per month with effect from 1st January. 1.APPENDIX 2B HOW TO FILL IN THE TAX DEDUCTION CARD P9A (INTEREST ON OWNER OCCUPIED RESIDENTIAL PROPERTY) 1 MONTHLY PERSONAL RELIEF: Monthly personal relief to a resident individual is Kshs. 20. Enter defined contribution/benefits calculation per column (e1). Enter total Gross pay of column A + Column B + Column C (if applicable). Enter monthly personal Relief Enter tax charged less personal relief (Column J – K).per month. 12500/. Enter Benefits (if applicable) calculated on the reverse side of P9. Column D less Column G. Enter the lowest amount of Retirement Contribution under Column E plus interest under Column F. (e3). 3 ENTRIES ON P9 CARD: COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Column e1 Column e2 Column e3 COLUMN F COLUMN G COLUMN H Enter Basic salary plus all cash allowances. (e2). COLUMN J COLUMN K COLUMN L END OF YEAR - Finally enter the total of columns (H) and (L) in the space provided. Enter the fixed monthly limit which is Kshs.e. .

Enter tax charged. 48. . Enter actual amount of contribution made by the employee. Enter total Gross Pay of Column A + Column B + Column C. Enter tax charged less personal relief (Column J-K). COLUMN D COLUMN E Column e1 Column e2 Column e3 COLUMN F - COLUMN G COLUMN H - COLUMN J COLUMN K COLUMN L END OF YEAR - Finally enter the total of columns (H) and (L) in the spaces provided. 20. 1.per month. Enter the lowest amount of Column E plus Column F.per month due to any resident individual. BENEFITS: Rates of benefits are to be found in Paragraph (6) and (7) of Part I and Appendix 7 of the Guide Book. in accordance with the Rates of tax provided in this Guide Book.162/. VALUATION OF QUARTERS: Is explained as item (g) on Page 7 of the Guide Book. Enter the allowable monthly deposit of funds subject to a maximum of Kshs.APPENDIX 3B HOW TO FILL IN THE TAX DEDUCTION CARD P9A (HOSP) (HOME OWNERSHIP SAVING PLAN) MONTHLY PERSONAL RELIEF: Monthly personal relief is with effect from 1st January.in a year. Enter the fixed monthly limit which is Kshs. Enter Benefits (if applicable) calculated on the reverse side of P9A (HOSP). 4000/. If housing is provided by employer enter 15% (percent) of the total amount in Column A + Column B less the amount of monthly rent paid by employee (see example in Part I (“HOW PAYE IS WORKED”). ENTRIES ON P9A (HOSP) COLUMN A COLUMN B COLUMN C Enter Basic salary plus all cash allowances.per month or Kshs. (e2).000/. (e3). 2006 Kshs. Enter 30 per cent (30%) of pensionable monthly pay per Column (D). Enter balance pay of month after deduction of contribution/defined benefit and deposit on Home Ownership Saving Plan that is Column D less Column G. Enter monthly personal Relief. Enter defined contribution/defined benefit calculation per columns (e1).000/.

3.770 Kshs. 10.(APPENDIX 4) Normally an employer pays an employee a gross salary out of which tax is deducted. 17. l4. When employer pays an employee a net-of tax salary. Where the employee does NOT receive housing benefits. .770* Kshs.APPENDIX 4A TABLE I HOW TO FILL IN TAX DEDUCTION CARD P. 1. 630 Kshs.9B) Kshs.000 Kshs.370 Kshs. 2. 15.216 *See Jan-May entries .162 Kshs. 24. 1.9B (TAX-FREE REMUNERATION) USE TABLE 1 AND TABLE 2 EXAMPLES (APPENDIX 4C AND 4D) Where an employer pays the tax liability due on an employee's earnings such that the employee receives income free of tax. calculate the tax liability for the month as follows:(1) Monthly cash income before pension deduction (2) Deductible pension contribution (3) Monthly cash income after pension deductions (1)-(2) (4) Monthly benefits (5) Monthly taxable income (3+4) (6) Tax on monthly taxable income (calculated from Table 1 column (b) (7) Monthly personal reliefs (8) Tax net of relief (6)-(7) (9) Factor without housing (Table 1 Column (d) for taxable income in row (5) above) (10) Monthly tax payable (multiply (8) by (9) (11) Chargeable income (10)+(1) (Enter gross pay in column (A) of P.378 Kshs.000 Kshs.370 Kshs. then tax has to be paid by the employer on top of net salary paid to the employee. 2. then the employer shall calculate the monthly tax liability as follows:A.250 Kshs.

27.527 Kshs. 3.437 Kshs.83.23.64.162 Kshs.294 Kshs.002 Kshs.250 Kshs.15. 1. 94. 1.132 Kshs.044 Kshs.10.162 Kshs. column (b)) (9) Monthly tax reliefs (10) Tax net of reliefs (8)-(9) (11) Factor with housing Table 1. column (e) for taxable income in row 7 above (12) Monthly tax payable (multiply 10 by 11) (13) Chargeable income (12) + (1) Enter gross Pay in column (A) of P. 3.002 Kshs. (7) Taxable income (5) + (6) (8) Tax on monthly taxable income (calculate from Table 1.50.044 Kshs. 1.002 * Fair market value ** See month of June-September entries – (APPENDIX 4) *** See months of October-December – (APPENDIX 4) .27. 2.33.795 Kshs.49.795** Kshs.044 Kshs.21. Where the employee received housing benefits.000 Kshs.9B) Kshs.000 Kshs.000 Kshs. 956 Kshs.17.000 Kshs.437** Kshs.22.750 Kshs. 998 Kshs.912 Kshs.18.30.000* Kshs. 1. where applicable. calculate the tax liability for the month as follows:(1) Monthly cash income before pension deductions (2) Deductible pension contributions (3) Monthly cash income after pension deductions (1-(2) (4) Monthly benefits (5) Income including benefits (3)+(4) (6) Housing benefit 15% of (5) or monthly fair market rental value.APPENDIX 4B TABLE 2 TAX FREE REMUNERATION B.

9576 For taxable incomes Kshs.429 1. 38893 and @ 30% on taxable above income over Kshs. 1016 tax on taxable Income of Kshs. 29317 taxable income of Kshs. 2394 on under Kshs.208 20% 1.250 1. 19741 but Kshs.527 From Kshs. 9576 For taxable incomes Kshs. 38892 . from Kshs. Kshs. 1016 plus Kshs. 10165. 4367 plus from Kshs.130 For taxable income Kshs. 10165 but 1436 Tax on taxable under Kshs.APPENDIX 4C TABLE 1 (TAX FREE REMUNERATION) TAX TABLE FOR MONTHLY INCOME YEAR 2006 Taxable Income Range (monthly) (a) Tax on Taxable Income (b) Marginal Tax Rate (c) Factor Without Housing (d) Factor With Housing (e) For taxable income Under Kshs.176 1. 1915 on under Kshs. 6761 plus tax 15% 1.111 1.333 1.299 25% 1. 38893 taxable income of 9576 For taxable incomes Kshs. 19741 income of Kshs. 10164 10% 1. 2452 plus from Kshs.404 30% 1. 29317but Kshs.

29424 plus from Kshs. 114912 For taxable incomes Kshs.208 20% 1. 114912 For taxable incomes Kshs. 466705 tax @ 30% of and above taxable income over Kshs. 22980 tax on but under Kshs. 28728 tax on but under Kshs. 236881 taxable income of Kshs. taxable income of 351793 Kshs. taxable income of 466705 Kshs.176 1.429 1.527 . 12192 plus Kshs. 121969 but Kshs. 12192 tax on Taxable income of Kshs.333 1. 81132 plus from Kshs. 17232 tax on under Kshs. 121969 Tax on Taxable Income (b) Kshs. 466704 15% 1.111 1.404 30% 1. 121968 Margina Tax Rate (c) Factor Without Housing (d) Factor With Housing (e) 10% 1. 351793 Kshs. 52404 plus from Kshs.250 1. 114912 For taxable incomes Kshs.APPENDIX 4D TABLE 2 (TAX FREE REMUNERATION) TAX TABLE FOR ANNUAL INCOME YEAR – 2006 Taxable Income Range (Annually) (a) For taxable income Under Kshs. 226881 Kshs.299 25% 1.130 For taxable income Kshs.

1. Over 3000 cc.) 18000 6000 AGRICULTURAL EMPLOYEES: REDUCED RATES OF BENEFITS Water Electricity th 200 900 2400 10800 Note: The above rates (A + B) are effective from 12 June 2003.APPENDIX 7 COMMISSIONER’S PRESCRIBED BENEFIT RATES 2006 A SERVICES Monthly Rates (Kshs) (i) (ii) (iii) Electricity –( communal or from a generator) Water – (communal or from a borehole) Provision of furniture (1% of cost to employer). (Kshs. Panel Van Unconverted Up to 1750cc.5% p.m. 1201 to 1500 cc. C (i) MOTOR CARS Saloon Hatch Backs and Estates Up to 1200 cc. the benefit should be taken as the higher of: (a) Fixed monthly rate determined by the Commissioner as shown above and (b) The prescribed rate of benefits. the higher of the cost of hiring or leasing the vehicle and Commissioner’s prescribed rates should be taken. Car Benefit Where an employee is provided with a motor vehicle by employer. the prescribed rate of benefit means:The proportion of the initial capital cost of the vehicle for each month as follows:1996………………. (ii) Pick-ups.m.m. 2001 to 3000 cc. 1501 to 1750 cc. 1751 to 2000 cc. Where such vehicle is hired or leased from a third party. 1997………………. . (iii) Land Rovers/Cruisers 3600 4200 7200 43200 50400 86400 3600 4200 5800 7200 8600 14400 43200 50400 69600 86400 103200 172800 Note: 1 2 Range Rovers and vehicles of similar nature are classified as saloons. Over 1750 cc. In this case. If hired the cost of hire should be brought to charge (iv) B (i) (ii) Telephone (Landline and Mobile Phones) 30% of bills 1500 500 Annual Rates. 1998 et seq………… 1% p. 2% p.

% 1-9680 9120 9120 9120 EXCESS OVER KSHS.APPENDIX 7A TABLE 1 INDIVIDUAL RATES OF TAX/RELIEFS: YEARS 2004 – 2006 2004 MONTHLY TAXABLE PAY KSHS. 1056 PER MONTH (SHS. 38. 1162 PER MONTH (SHS.480 10% 15% 20% 25% 30% 1-10164 9576 9576 9576 EXCESS OVER KSHS. 37. RATES OF TAX % IN EACH KSHS.% 10% 15% 20% 25% 30% PERSONAL RELIEF: SHS.466. 444.040 1-116160 109440 109440 109440 EXCESS OVER KSHS.466. 38. 1-121968 114912 114912 114912 EXCESS OVER KSHS. 12672 PER ANNUM) PERSONAL RELIEF: SHS. ANNUAL TAXABLE PAY KSHS.704 10% 15% 20% 25% 30% 1-10164 9576 9576 9576 EXCESS OVER KSHS. 13944 PER ANNUM) PERSONAL RELIEF: SHS. 1162 PER MONTH (SHS. 13944 PER ANNUM) . ANNUAL TAXABLE PAY KSHS.% 2006 MONTHLY TAXABLE PAY KSHS.892 2005 MONTHLY TAXABLE PAY KSHS.704 RATES OF TAX % IN EACH KSHS. RATES OF TAX % IN EACH KSHS. ANNUAL TAXABLE PAY KSHS.892 1-121968 114912 114912 114912 EXCESS OVER KSHS.

12672 PER ANNUM) MONTH (SHS.00 6.00 3. ANNUAL TAXABLE PAY KSHS. 37.00 5. 12672 PER ANNUM) ANNUM) .040 1 – 116160 109440 109440 109440 EXCESS OVER KSHS. 1056 PER PER MONTH (SHS.480 10% 15% 20% 25% 30% PERSONAL RELIEF: SHS. 37.520 PER MONTH (SHS. 960 PERSONAL RELIEF: SHS. 11. 444.00 10% 15% 20% 25% 30% 1-9680 9120 9120 9120 EXCESS OVER KSHS. 2003 MONTHLY TAXABLE PAY KSHS.480 10% 15% 20% 25% 30% 1-9680 9120 9120 9120 EXCESS OVER KSHS.00 4.040 1-116160 109440 109440 109440 EXCESS OVER KSHS. RATE OF TAX IN % PER KSHS. 1056 PER PERSONAL RELIEF: SHS.APPENDIX 7A TABLE 2 INDIVIDUAL RATES OF TAX/RELIEF’S: YEARS 2001 – 2003 2001 MONTHLY TAXABLE PAY KSHS ANNUAL TAXABLE PAY K£ RATES OF TAX IN EVERY KSHS 20/= 2002 MONTHLY TAXABLE PAY KSHS ANNUAL TAXABLE PAY KSHS RATES OF TAX IN % PER KSHS. 1-456 456 456 456 EXCESS OVER K£1824 5472 5472 5472 5472 EXCESS OVER K£21888 2. 444.

APPENDIX 7B LOW INTEREST RATES BENEFIT COMMISSIONER’S PRESCRIBED RATES OF INTEREST: YEARS 2002 – 2005 YEAR 2002 PERIOD APPLICABLE January – June July – December YEAR 2004 January – June July – December 1% 2% RATE APPLICABLE 12% 8% YEAR 2003 PERIOD APPLICABLE January – June July – December YEAR 2005 January – June July – December 4% 8% RATE APPLICABLE 8% 5% .

2005 The Commissioner of Domestic Taxes published the following Market Interest Rates to be applied for the years 2001 and 2005.APPENDIX 7C FRINGE BENEFIT TAX MARKET INTEREST RATES: YEARS 2001 . YEAR 2001 MONTH January February March April May June July August September October November December RATE 14% 15% 14% 12% 10% 11% 11% 11% 11% 12% 12% 12% YEAR 2002 MONTH January February March April May June July August September October November December RATE 11% 11% 11% 10% 10% 10% 8% 8% 8% 8% 8% 8% YEAR 2003 MONTH January February March April May June July August September October November December RATE 8% 8% 8% 7% 7% 7% 5% 5% % 1% 1% 1% YEAR 2004 MONTH January February March April May June July August September October November December RATE 1% 1% 1% 1.5% 2% 2% 2% 2% 2% 2% YEAR 2005 MONTH January February March April may June July August September October November December RATE 6% 6% 6% 8% 8% 8% 8% 8% 8% 8% 8% 8% .5% 1.5% 1.

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